##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 For the transition period from _________ to ___________
 Commission File Number 001-14429
 SKECHERS U.S.A., INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or Other Jurisdiction of Incorporation or Organization)
    
    95-4376145
(I.R.S. Employer Identification No.)228 Manhattan Beach Blvd.Manhattan Beach, California
(Address of Principal Executive Office)
    
    90266(Zip Code)
 (310) 318-3100
(Registrants Telephone Number, Including Area Code)
 x o
  Large accelerated filer  o
    
    Accelerated filer  x
    
    Non-accelerated filer  o
  o x




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##### 



SKECHERS U.S.A., INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements Of Earnings And Comprehensive Income
    
    
    4Condensed Consolidated Statements Of Cash Flows
    
    
    5Notes To Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion And Analysis Of Financial Condition And Results Of Operations
    
    
    14Item 3.
    
    Quantitative And Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls And Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    23Item 6.
    
    Exhibits
    
    
    24Signatures
    
    
    25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 KECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    115,315
    
    
    $
    160,485Short-term investments
    
    
    61,500
    
    
    
    60,000Trade accounts receivable, less allowances of $12,018 in 2007 and $10,558 in 2006
    
    
    223,043
    
    
    
    177,740Other receivables
    
    
    8,124
    
    
    
    8,035Total receivables
    
    
    231,167
    
    
    
    185,775Inventories
    
    
    169,052
    
    
    
    200,877Prepaid expenses and other current assets
    
    
    16,894
    
    
    
    15,321Deferred tax assets
    
    
    9,490
    
    
    
    9,490Total current assets
    
    
    603,418
    
    
    
    631,948Property and equipment, at cost, less accumulated depreciation and amortization
    
    
    88,581
    
    
    
    87,645Intangible assets, less accumulated amortization
    
    
    392
    
    
    
    633Deferred tax assets
    
    
    11,984
    
    
    
    11,984Other assets, at cost
    
    
    4,869
    
    
    
    4,843TOTAL ASSETS
    
    $
    709,244
    
    
    $
    737,053LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current installments of long-term borrowings
    
    
    413
    
    
    
    576Accounts payable
    
    
    110,993
    
    
    
    161,150Accrued expenses
    
    
    18,310
    
    
    
    19,435Total current liabilities
    
    
    129,716
    
    
    
    181,1614.50% convertible subordinated notes
    
    
    
    
    
    
    89,969Long-term borrowings, excluding current installments
    
    
    16,747
    
    
    
    16,836Total liabilities
    
    
    146,463
    
    
    
    287,966Commitments and contingenciesStockholders equity:Preferred Stock, $.001 par value; 10,000 authorized; none issued and outstanding
    
    
    
    
    
    
    Class A Common Stock, $.001 par value; 100,000 shares authorized; 32,269 and
28,103 shares issued and outstanding at March 31, 2007 and
December 31, 2006, respectively
    
    
    33
    
    
    
    28Class B Common Stock, $.001 par value; 60,000 shares authorized; 13,242 and
13,768 shares issued and outstanding at March 31, 2007 and
December 31, 2006, respectively
    
    
    13
    
    
    
    14Additional paid-in capital
    
    
    252,314
    
    
    
    156,374Accumulated other comprehensive income
    
    
    8,437
    
    
    
    11,200Retained earnings
    
    
    301,984
    
    
    
    281,471Total stockholders equity
    
    
    562,781
    
    
    
    449,087TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    709,244
    
    
    $
    737,053
  3




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SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
 Three-Months Ended March 31,2007
    
    
    2006Net sales
    
    $
    344,896
    
    
    $
    277,565Cost of sales
    
    
    195,857
    
    
    
    159,190Gross profit
    
    
    149,039
    
    
    
    118,375Royalty income
    
    
    1,201
    
    
    
    994150,240
    
    
    
    119,369Operating expenses:Selling
    
    
    26,841
    
    
    
    20,187General and administrative
    
    
    85,984
    
    
    
    71,933112,825
    
    
    
    92,120Earnings from operations
    
    
    37,415
    
    
    
    27,249Other income (expense):Interest income
    
    
    2,438
    
    
    
    1,771Interest expense
    
    
    (1,591
    )
    
    
    (2,230
    )Other, net
    
    
    (22
    )
    
    
    206825
    
    
    
    (253
    )Earnings before income taxes
    
    
    38,240
    
    
    
    26,996Income tax expense
    
    
    14,340
    
    
    
    10,398Net earnings
    
    $
    23,900
    
    
    $
    16,598Net earnings per share:Basic
    
    $
    0.54
    
    
    $
    0.41Diluted
    
    $
    0.52
    
    
    $
    0.38Weighted average shares:Basic
    
    
    43,951
    
    
    
    40,306Diluted
    
    
    46,803
    
    
    
    45,395Comprehensive income:Net earnings
    
    $
    23,900
    
    
    $
    16,598Foreign currency translation adjustment, net of tax
    
    
    (2,763
    )
    
    
    564Total comprehensive income
    
    $
    21,137
    
    
    $
    17,162
  4




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SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Three-Months Ended March 31,2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    23,900
    
    
    $
    16,598Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    4,067
    
    
    
    4,196Amortization of deferred financing costs
    
    
    95
    
    
    
    191Amortization of intangible assets
    
    
    123
    
    
    
    126Provision for bad debts and returns
    
    
    2,189
    
    
    
    2,951Tax benefits from stock-based compensation
    
    
    2,290
    
    
    
    1,786Non cash stock compensation
    
    
    324
    
    
    
    623Gain on disposal of equipment
    
    
    (1
    )
    
    
    (2
    )(Increase) decrease in assets:Receivables
    
    
    (47,271
    )
    
    
    (41,303
    )Inventories
    
    
    31,839
    
    
    
    17,365Prepaid expenses and other current assets
    
    
    (1,567
    )
    
    
    (1,695
    )Other assets
    
    
    (89
    )
    
    
    17Increase (decrease) in liabilities:Accounts payable
    
    
    (51,799
    )
    
    
    (12,636
    )Accrued expenses
    
    
    (4,541
    )
    
    
    (9,487
    )Net cash used in operating activities
    
    
    (40,441
    )
    
    
    (21,270
    )Cash flows used in investing activities:Capital expenditures
    
    
    (7,692
    )
    
    
    (3,518
    )Purchases of short-term investments
    
    
    (8,400
    )
    
    
    Maturities of short-term investments
    
    
    6,900
    
    
    
    Net cash used in investing activities
    
    
    (9,192
    )
    
    
    (3,518
    )Cash flows from financing activities:Net proceeds from the issuances of stock through employee stock purchase plan and
the exercise of stock options
    
    
    3,626
    
    
    
    7,575Payments on long-term debt
    
    
    (250
    )
    
    
    (259
    )Excess tax benefits from stock-based compensation
    
    
    957
    
    
    
    1,509Net cash provided by financing activities
    
    
    4,333
    
    
    
    8,825Net decrease in cash and cash equivalents
    
    
    (45,300
    )
    
    
    (15,963
    )Effect of exchange rates on cash and cash equivalents
    
    
    130
    
    
    
    178Cash and cash equivalents at beginning of the period
    
    
    160,485
    
    
    
    197,007Cash and cash equivalents at end of the period
    
    $
    115,315
    
    
    $
    181,222Supplemental disclosures of cash flow information:Interest paid
    
    $
    1,234
    
    
    $
    1,135Income taxes paid
    
    
    9,044
    
    
    
    13,282Conversion of subordinated notes into common stock
    
    
    89,969
    
    
    
    
    5




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SKECHERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (1) GENERAL
 Basis of Presentation
   Reclassifications
  Use of Estimates
  (2) SHORT-TERM INVESTMENTS
  (3) REVENUE RECOGNITION
   6




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(4) OTHER COMPREHENSIVE INCOME
  (5) STOCK COMPENSATION
   WEIGHTED AVERAGE
    
    AGGREGATEWEIGHTED AVERAGE
    
    REMAINING
    
    INTRINSICSHARES
    
    EXERCISE PRICE
    
    CONTRACTUAL TERM
    
    VALUEOutstanding at December 31, 2006
    
    
    2,485,585
    
    
    $
    11.74Granted
    
    
    
    
    
    
    Exercised
    
    
    (267,584
    )
    
    
    13.55Forfeited
    
    
    (15,265
    )
    
    
    19.33Outstanding at March 31, 2007
    
    
    2,202,736
    
    
    
    11.47
    
    
    4.6 years
    
    $
    48,688,902Exercisable at March 31, 2007
    
    
    2,169,611
    
    
    
    11.45
    
    
    4.6 years
    
    $
    47,994,650
  WEIGHTED AVERAGESHARES
    
    GRANT-DATE FAIR VALUENonvested at December 31, 2006
    
    
    17,333
    
    
    $
    16.38Granted
    
    
    
    
    
    
    Vested
    
    
    (4,000
    )
    
    
    15.66Nonvested at March 31, 2007
    
    
    13,333
    
    
    
    16.60
 (6) EARNINGS PER SHARE
  7




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Three-Months Ended March 31,Basic earnings per share
    
    2007
    
    
    2006Net earnings
    
    $
    23,900
    
    
    $
    16,598Weighted average common shares outstanding
    
    
    43,951
    
    
    
    40,306Basic earnings per share
    
    $
    0.54
    
    
    $
    0.41
  Three-Months Ended March 31,Diluted earnings per share
    
    2007
    
    
    2006Net earnings
    
    $
    23,900
    
    
    $
    16,598After tax effect of interest expense on 4.50%
convertible subordinated notes
    
    
    352
    
    
    
    619Earnings for purposes of computing diluted earnings
per share
    
    $
    24,252
    
    
    $
    17,217Weighted average common shares outstanding
    
    
    43,951
    
    
    
    40,306Dilutive effect of stock options
    
    
    1,379
    
    
    
    1,623Weighted average shares to be issued assuming
conversion of 4.50% convertible subordinated notes
    
    
    1,473
    
    
    
    3,466Weighted average common shares outstanding
    
    
    46,803
    
    
    
    45,395Diluted earnings per share
    
    $
    0.52
    
    
    $
    0.38
  (7) INCOME TAXES
  Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement
109
  8




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(8) LINE OF CREDIT
  (9) LITIGATION
  9




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10




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(10) STOCKHOLDERS EQUITY
  (11) SEGMENT AND GEOGRAPHIC REPORTING INFORMATION
  Three Months Ended March 31,2007
    
    
    2006Net salesDomestic wholesale
    
    $
    213,168
    
    
    $
    178,837International wholesale
    
    
    71,557
    
    
    
    48,381Retail
    
    
    56,785
    
    
    
    47,870E-commerce
    
    
    3,386
    
    
    
    2,477Total
    
    $
    344,896
    
    
    $
    277,565
 Three Months Ended March 31,2007
    
    
    2006Gross ProfitDomestic wholesale
    
    $
    85,216
    
    
    $
    68,867International wholesale
    
    
    27,222
    
    
    
    18,768Retail
    
    
    34,883
    
    
    
    29,550E-commerce
    
    
    1,718
    
    
    
    1,190Total
    
    $
    149,039
    
    
    $
    118,375
 March 31, 2007
    
    
    December 31, 2006Identifiable AssetsDomestic wholesale
    
    $
    536,894
    
    
    $
    563,956International wholesale
    
    
    109,582
    
    
    
    108,210Retail
    
    
    62,609
    
    
    
    64,634E-commerce
    
    
    159
    
    
    
    253Total
    
    $
    709,244
    
    
    $
    737,053
 Three Months Ended March 31,2007
    
    
    2006Additions to property, plant and equipmentDomestic wholesale
    
    $
    4,430
    
    
    $
    2,320International wholesale
    
    
    165
    
    
    
    96Retail
    
    
    3,097
    
    
    
    1,102Total
    
    $
    7,692
    
    
    $
    3,518
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Three Months Ended March 31,2007
    
    
    2006Net Sales (1)United States
    
    $
    269,054
    
    
    $
    225,907Canada
    
    
    9,181
    
    
    
    6,082Other international (2)
    
    
    66,661
    
    
    
    45,576Total
    
    $
    344,896
    
    
    $
    277,565
 March 31, 2007
    
    
    December 31, 2006Long-lived AssetsUnited States
    
    $
    85,563
    
    
    $
    81,161Canada
    
    
    504
    
    
    
    764Other international (2)
    
    
    2,514
    
    
    
    5,720Total
    
    $
    88,581
    
    
    $
    87,645
 
 (1)
    
    The Company has subsidiaries in Canada, United Kingdom, Germany, France, Spain, Italy,
Netherlands, and Brazil that generate net sales within those respective countries and in some
cases the neighboring regions. The Company also has a subsidiary in Switzerland that generates
net sales to that region in addition to net sales to our distributors located in numerous
non-European countries. Net sales are attributable to geographic regions based on the location
of the Company subsidiary.(2)
    
    Other international consists of Switzerland, United Kingdom, Germany, France, Spain, Italy,
Netherlands, and Brazil. (12) BUSINESS AND CREDIT CONCENTRATIONS
    12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     14




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Three-Months Ended March 31,2007
    
    
    2006Percentage of revenues by segmentDomestic wholesale
    
    
    61.8
    %
    
    
    64.4
    %International wholesale
    
    
    20.8
    %
    
    
    17.4
    %Retail
    
    
    16.4
    %
    
    
    17.3
    %E-commerce
    
    
    1.0
    %
    
    
    0.9
    %Total
    
    
    100
    %
    
    
    100
    %
    Three-Months Ended March 31,2007
    
    
    2006Net sales
    
    $
    344,896
    
    
    
    100.0
    %
    
    $
    277,565
    
    
    
    100.0
    %Cost of sales
    
    
    195,857
    
    
    
    56.8
    
    
    
    159,190
    
    
    
    57.4Gross profit
    
    
    149,039
    
    
    
    43.2
    
    
    
    118,375
    
    
    
    42.6Royalty income
    
    
    1,201
    
    
    
    0.4
    
    
    
    994
    
    
    
    0.4150,240
    
    
    
    43.6
    
    
    
    119,369
    
    
    
    43.0Operating expenses:Selling
    
    
    26,841
    
    
    
    7.8
    
    
    
    20,187
    
    
    
    7.3General and administrative
    
    
    85,984
    
    
    
    24.9
    
    
    
    71,933
    
    
    
    25.9112,825
    
    
    
    32.7
    
    
    
    92,120
    
    
    
    33.2Earnings from operations
    
    
    37,415
    
    
    
    10.9
    
    
    
    27,249
    
    
    
    9.8Interest income
    
    
    2,438
    
    
    
    0.7
    
    
    
    1,771
    
    
    
    0.6Interest expense
    
    
    (1,591
    )
    
    
    (0.5
    )
    
    
    (2,230
    )
    
    
    (0.8
    )Other, net
    
    
    (22
    )
    
    
    
    
    
    
    206
    
    
    
    0.1Earnings before income taxes
    
    
    38,240
    
    
    
    11.1
    
    
    
    26,996
    
    
    
    9.7Income taxes
    
    
    14,340
    
    
    
    4.2
    
    
    
    10,398
    
    
    
    3.7Net earnings
    
    $
    23,900
    
    
    
    6.9
    %
    
    $
    16,598
    
    
    
    6.0
    %
 15




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Net sales
     Gross profit
  16




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Licensing
  Selling expenses
   General and administrative expenses
  17




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Interest income
  Interest expense
  Income taxes
      18




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19




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Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
  The Fair Value Option for Financial Assets and Financial Liabilities, Including
an amendment of FASB Statement No. 115
 Fair Value
Measurements
 20




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   21




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Interest rate fluctuations
 Foreign exchange rate fluctuations
  
 ITEM 4. CONTROLS AND PROCEDURES
        22




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales.
  We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential
Disruptions In Product Supply.
  23




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One Principal Stockholder Is Able To Control Substantially All Matters Requiring A Vote Of Our
Stockholders And His Interests May Differ From The Interests Of Our Other Stockholders.
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer and the Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***
 
 ***
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed
filed for the purposes of Section 18 of the Exchange Act or otherwise subject to the
liability of that section, nor shall it be deemed incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Exchange Act. 24




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SIGNATURES
  Date: May 10, 2007
    SKECHERS U.S.A., INC.By:
    /S/ FREDERICK H. SCHNEIDERFrederick H. SchneiderChief Financial Officer
(Principal Financial and Accounting Officer) 25